Entrepreneurs have more retirement options
Possibilities include stepping back early, working part-time or selling the business

On Joe Remer's 65th birthday he got up, had breakfast, and went to work just like any other day. Unlike many who count the minutes until retirement, the packaging industry veteran could not see himself playing shuffleboard for 30 to 40 years.

"Nowhere is it written that you have to retire at 65," said Remer, president of Impact Graphics, which manufactures printed boxes used to package toys, consumer products and cosmetics. "When you get older you acquire a wealth of knowledge and experience. It makes no sense to put it all to waste."

Unlike those who work in government or companies with mandatory retirement regulations, entrepreneurs like Remer have to freedom to choose how and when they decide to step aside. That freedom is one of the key advantages of being self-employed said Leonard Mintz, a chartered accountant who has advised numerous clients about their succession arrangements.

"The most important decision is whether the business owner should sell the company or pass it on to the next generation," Mintz said. "The choice can bring significant tax consequences, so you need to start planning early."

In Remer's case the decision was easy. One of his three children, his son Ben, had a keen interest in joining the business, and more important, the two have great chemistry.

"He is a good boy," the elder Remer said smiling. "When he was young he used to sit beside me quietly in the synagogue, rather than run around and make a lot of noise like the other kids."

Ben Remer, who has an MBA from the University of Western Ontario's Richard Ivey School of Business, joined his father three years ago after a stint with a Toronto-based packaging products company. Today he handles administration and services long-time customers.

The older Remer wanted to the succession to take place gradually, to ease the transition for the company's employees and clients, but also because he still gets a kick out of producing boxes.

"I love to create things," Remer said, while checking a press proof and matching it to the die, which will be used to cut the boxes. "I like nothing better than to ask clients which of their products aren't selling, and to find a way to make their packaging stand out on the store shelf."

The elder Remer also takes his role mentoring his son seriously.

"Business schools teach using the case method. The professors describe a business problem, then the students try to figure out the best way to deal with it," Remer said. "As an entrepreneur we do that every day. We can teach a lot that is not written down in any textbook."

According to Sylvio Muzzo, Impact Graphic's long-time general manager and a minority shareholder, father and son make a good team.

"Mr. Remer knows the business from the ground up, and has fantastic practical experience, Muzzo said. "His son Ben has a fantastic formal educational and strong theoretical knowledge. It's a good combination."

Despite their different backgrounds, the Remers have similar goals. They want to continue to grow the company slowly using a conservative management strategy. The company rarely borrows, preferring to buy older equipment at deep discounts through internally generated cash.

One example is the recent acquisition of an eight-colour press, which Remer claims is the first in the Montreal market. The company paid three quarters of the acquisition cost up front, financing only a small percentage.

Remer is also conservative in his personal habits. Despite the fact that Impact generated more than $6 million in sales last year, coupled with his ownership of building in which the company operates, Remer drives a 1994 Oldsmobile. It's a late model car that would almost certainly be derided by young hotshot managers who have never weathered a recession before.

Remer however has had the last laugh more than once, and has seen printed box companies come and go in the 37 years Impact has been in business.

According to Mintz, who advised Remer on the Impact succession, one of the best ways to transfer a business to the next generation is through an obscure loophole called an "estate freeze."

The measure helps avoid the tax burdens that families often incur when a business owner passes away. Although Canadians benefit from a $500,000 lifetime capital gains exemption, many small businesses have book values far greater.

Through an estate freeze, a business owner transfers his common shares to successors, and maintains control through voting preferred shares, with the estate value frozen as of the date of transfer. The upshot is that future increases in the business's value accrue to the next generation. The move can save hundreds of thousands and sometimes millions of dollars in taxes.

But according to Mintz anyone interested in an estate freeze should consult an expert.

"Entrepreneurs often don't have pension plans," Mintz said. "Although most have RSPs, their businesses are their biggest assets. That means they need to be careful."

 

Photo caption: According to Joe Remer, president of Impact Graphics, shown here with his son Ben in front of the company's new eight color press, entrepreneurs have far greater flexibility in planning their retirements.

 

Sidebar: Planning an entrepreneur's retirement

o In general entrepreneurs have greater flexibility in planning their retirement. They can start working part-time years before they turn 65, so they can ease into retirement. Or they can keep working as long as they want.

o However an entrepreneur is usually his company's biggest asset. That means retirement must be carefully planned so that the business's value doesn't plunge when he leaves.

o The biggest choice a retiring entrepreneur has to make is whether to sell his business or to transfer it to his kids. In either case, planning must begin long beforehand to minimize the tax consequences.

o One typical strategy to ease the business's transfer to the next generation is an estate freeze, through which future capital appreciation accrues to the heirs.

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